BofA (BAC) Beats on Q3 Earnings as Bond Trading Improves

Rise in fixed income sales and trading revenue as well as mortgage banking fees led to Bank of America Corporation’s BAC third-quarter 2016 earnings of 41 cents per share, which surpassed the Zacks Consensus Estimate of 34 cents. Also, the figure was 8% higher than the prior-year quarter number.

BofA’s shares rose nearly 2% in pre-market trading, reflecting improved fixed income trading revenues and efficient cost control. Notably, the price reaction during the full trading session will provide a better idea about how investors have accepted the results.

Impressive growth in fixed income trading revenues and investment banking fees along with higher mortgage banking income supported revenue growth. However, weakness in equity trading revenues marginally offset these positives.

Though credit costs witnessed a rise, energy sector concerns seem to be over. Further, absence of legal costs and efficient expense management were sufficient to support the bottom line.

Also, the overall performance of the company’s business segments, in terms of net income generation, was decent. All segments, except Others, witnessed improvement in net income.

Revenue Improvement Support Results

Net revenue amounted to $21.9 billion, up 3% from the prior-year quarter. Further, the top line beat the Zacks Consensus Estimate of $20.8 billion.

Net interest income, on a fully taxable-equivalent basis, grew 3% year over year to $10.4 billion. Further, net interest yield rose 4 basis points (bps) year over year to 2.23%. Moreover, non-interest income increased 3% year over year to $11.4 billion.

Non-interest expense was $13.5 billion, decreasing 3% year over year.

Improvement in Credit Quality

As of Sep 30, 2016, ratio of nonperforming loans, leases and foreclosed properties was 0.97%, down 21 bps year over year. Further, net charge-offs fell 5% from the year-ago quarter to $888 million.

However, provision for credit losses increased 5% year over year to $850 million due to lower reserve releases.

Strong Capital Position

The company’s book value per share as of Sep 30, 2016 was $24.19, compared with $22.40 as of Sep 30, 2015. Tangible book value per share as of Sep 30, 2016 was $17.14, up from $15.50 as of Sep 30, 2015.

As expected by management, investment banking revenues recorded a rise in the reported quarter. Further, fixed income trading improvement continued to support the results. Also, BofA’s efforts to realign balance sheet, focus on core operations and prudent cost management will likely support bottom-line growth.

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